Livestock Analysis (VIP) -- June 6, 2013

June 6, 2013 10:02 AM


Price action: Bulls had the advantage in the lean hog market on the upside gap open, and the market strengthened as the day progressed. Futures pared gains heading into the close, but the market still ended 37 1/2 to $1.25 higher for the day in most contracts.

Fundamental analysis: Lean hogs gapped higher on the open thanks to concerns about tightening supplies and optimism about yesterday's rise in the pork market in terms of both prices and movement. This buying enthusiasm strengthened as the U.S. dollar index plummeted as the market viewed this as supportive of export demand.

The cash hog market was varied today as some packers are working to improve margins by trimming kill schedules, while other are paying up for tightening supplies of market-ready hogs.

The market did rein gains in late in the session as the pork cutout value dropped $1.62 at midday, though movement held strong.

Technical analysis: July lean hogs gapped sharply higher on the open and tested but failed to close the Feb. 6 downside gap at $96.40. This is bulls' next target. Today's upside gap left a four-month island on the monthly chart. The high of that period at $94.00 is new support.

Hedgers: Carry all risk in the cash market for now.

Feed needs: All feed coverage has been lifted. Carry all risk in the cash market for now.


Live cattle

Price action: Live cattle futures closed moderately higher and near the highs of the day.

Fundamental analysis: Traders continue to wait on direction from cash trade in the Southern Plains. Talk continues to circulate of that cash cattle trade will take place at $123, which would be down $1 from the previous week and from the Cattle Fax five-day weighted average Kansas/Panhandle price. Packers are not likely to be aggressive in the face of a $1.32 decline in Choice beef values although movement was moderate. June futures remain at a $3 to $4 discount to cash prices.

Technical analysis: Futures continue to trend sideways with the May low of $117.90 providing support for August live cattle futures. However, the $119 area has provided support for six consecutive days. Initial resistance is at $120.90, but it will take a move above the May high of $124.10 to turn traders' heads.


Feeder cattle

Price action: Feeder cattle futures closed slightly higher near the day's highs, after trading in a very narrow trading range.

Fundamental analysis: Feeder cattle followed live cattle futures higher and found additional light support from weakness in the U.S. dollar index. The lead August contract continues to trade at a sizable premium to the CME feeder cattle index.

Technical analysis: Futures continue to be compressed into a tight $2-wide trading range. The August contract is bracketed by support at $144.00 and resistance at $146.00. On a broader scale, the contract low offers support at $142.50. It will take a close above the $152.17 1/2 reaction high to confirm a bottom.

Hedgers: Fed cattle producers should carry all risk in the cash market for now. Feeder cattle sellers and buyers should also carry all risk in the cash market for now, but feeder cattle buyers should stay in touch to establish long coverage.

Feed needs: All feed coverage has been lifted. Carry all risk in the cash market for now.

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